Hagerty Reports Third Quarter 2023 Results; Increases 2023 Outlook - Insurance News | InsuranceNewsNet

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November 8, 2023 Newswires
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Hagerty Reports Third Quarter 2023 Results; Increases 2023 Outlook

PR Newswire
  • Third quarter 2023 Total Revenue increased 27% to $275.6 million compared to the prior year period and year-to-date 2023 Total Revenue increased 28% to $755.2 million compared to the prior year period
  • Third quarter 2023 Written Premium increased 15% year-over-year to $255.6 million, and year-to-date 2023 Written Premium increased 16% to $714.3 million compared to the prior year period
  • Third quarter 2023 Membership, marketplace and other revenue increased 37% year-over-year to $32.6 million, and year-to-date 2023 Membership, marketplace and other revenue increased 47% to $82.7 million compared to the prior year period
  • Third quarter 2023 Net Income decreased 23% to $18.6 million compared to the prior year period, and year-to-date 2023 Net Income decreased 45% to $19.1 million compared to the prior year period
  • Third quarter 2023 Adjusted EBITDA of $37.4 million, an increase of $47.4 million compared to the prior year period, and year-to-date 2023 Adjusted EBITDA of $78.4 million, an increase of $78.4 million compared to the prior year period

TRAVERSE CITY, Mich., Nov. 8, 2023 /PRNewswire/ -- Hagerty, Inc. (NYSE: HGTY), an automotive lifestyle brand and a leading specialty insurance provider focused on the global automotive enthusiast market, today announced financial results for the three and nine months ended September 30, 2023.


Hagerty (PRNewsfoto/Hagerty)

"We again delivered strong revenue and cash flow growth in our third quarter, with a revenue increase of 27% and operating cash flow growth of 83% to $62 million," said McKeel Hagerty, Chief Executive Officer of Hagerty. "2023 is turning out to be a banner year for Hagerty, with year-to-date revenue growth of 28%, propelled by written premium gains of 16%, earned premium growth of 32%, and membership and marketplace gains of 47%. Our focus on creating a more profitable business has driven dramatically improved margins through operational efficiencies, cost discipline, and economies of scale. Given our sustained business momentum, we now expect to hit the upper end of our prior full year revenue guidance of 23-27% and are once again increasing our 2023 outlook for both net income and Adjusted EBITDA, powered by better-than-expected flow-through to the bottom line."

Mr. Hagerty continued, "Hagerty is at the beginning of what we believe will be a multi-year period of sustained revenue growth and strong incremental margins. I couldn't be prouder of One Team Hagerty's work as they fuel the passion for driving by helping car enthusiasts protect, buy and sell, and enjoy their vehicles."

THIRD QUARTER 2023 FINANCIAL HIGHLIGHTS

  • Third quarter 2023 Total Revenue increased 27% to $275.6 million compared to the prior year period and year-to-date 2023 Total Revenue increased 28% to $755.2 million compared to the prior year period.
  • Third quarter 2023 Written Premium increased 15% to $255.6 million compared to the prior year period, and year-to-date 2023 Written Premium increased 16% to $714.3 million compared to the prior year period.
  • Third quarter 2023 Commission and fee revenue increased 21% to $103.2 million compared to the prior year period, and year-to-date 2023 Commission and fee revenue increased 18% to $288.0 million compared to the prior year period.
    • Policies in Force Retention was 88.2% as of September 30, 2023 compared to 88.0% as of September 30, 2022. Total insured vehicles increased 6% year-over-year to 2.4 million compared to the prior year period.
  • Third quarter 2023 Loss Ratio was 41.1% compared to 56.4% in the prior year period. Year-to-date 2023 Loss Ratio was 41.5% compared to 46.8% in the prior year period. The year-over-year improvement was due in part to better underwriting results in the current year. In addition, prior year results included $10.0 million of catastrophe losses related to Hurricane Ian.
  • Third quarter 2023 Earned premium increased 30% to $139.8 million compared to the prior year period, and year-to-date 2023 Earned premium increased 32% to $384.5 million compared to the prior year period.
    • Earned premium growth was driven by the strong Written Premium growth as well as the increased quota share to approximately 80% compared to 70% in the prior year period.
    • AM Best assigned a financial strength rating of A- (Excellent) to Hagerty Reinsurance Limited.
  • Third quarter 2023 Membership, marketplace and other revenue increased 37% year-over-year to $32.6 million compared to the prior year period, and year-to-date 2023 Membership, marketplace and other revenue increased 47% to $82.7 million compared to the prior year period.
    • Third quarter 2023 Marketplace revenue increased 87% to $13.0 million compared to the prior year period, and year-to-date 2023 Marketplace revenue increased 210% to $24.9 million compared to the prior year period.
    • Third quarter 2023 Membership revenue increased 22% to $13.8 million compared to the prior year period, and year-to-date 2023 Membership revenue increased 20% to $39.5 million compared to the prior year period.
      • Hagerty Driver's Club (HDC) paid members increased 8% to approximately 807,000 compared to the prior year period.
  • Third quarter 2023 Operating Income of $16.1 million compared to a Loss of $(21.2) million in the prior year period, and year-to-date 2023 Operating Income of $16.9 million compared to a Loss of $(31.8) million in the prior year period.
    • Year-to-date 2023 results include restructuring charges of $8.9 million primarily associated with a reduction in force, reduced hiring plans and cost containment initiatives.
    • Year-to-date 2023 results includes losses and impairments of $4.1 million related to the termination of the Garage + Social joint venture and the sale of DriveShare.
    • Year-to-date 2023 depreciation and amortization was $34.9 million compared to $24.3 million in the prior year period. The increase was driven by a higher base of capital assets related to the digital platform which increased the expense by $4.8 million, as well as the $4.3 million impairment of media content assets during the first nine months of the year.
  • Third quarter 2023 Net Income of $18.6 million compared to $24.3 million in the prior year period, and year-to-date 2023 Net Income of $19.1 million compared to $34.6 million in the prior year period.
    • Net Income includes the impact from the change in fair value of warrant liabilities, the restructuring charges, as well as the impairment of media content assets.
  • Third quarter 2023 Adjusted EBITDA of $37.4 million compared to $(10.0) million in the prior year period, and year-to-date 2023 Adjusted EBITDA of $78.4 million compared to $0.1 million in the prior year period.
  • Third quarter 2023 Basic Earnings per Share was $0.04 and Diluted Earnings per Share was $0.04, and year-to-date 2023 Basic Earnings per Share was $0.04 and year-to-date Diluted Earnings per Share was $0.04.
    • Third quarter 2023 Adjusted EPS was $0.05, and year-to-date 2023 Adjusted EPS was $0.05.

2023 OUTLOOK — GROWTH AND PROFITABILITY

Despite the uncertain macro environment, we are delivering strong results in 2023 and are well positioned to deliver sustained profitable growth over the coming years. We are confident that the opportunities we have identified to monetize our addressable market will expand our share, and we have thoughtfully prioritized our growth initiatives in 2023 to significantly improve our profitability and fund our purpose to save driving and fuel car culture for future generations. For full year 2023, we anticipate:

  • Total Revenue growth of 26-27% powered by Written Premium growth of 15-16%
    • Sustain double-digit Written Premium growth trajectory
    • Deliver an unmatched online and live Marketplace experience
    • Drive loyalty, referrals and incremental revenue and profit from Membership
  • Continued evolution into an integrated insurance business
    • Increase Hagerty Re's quota share reinsurance agreement in the U.S. & U.K. to ~80%
  • Significantly improved profitability through cost containment measures and operational efficiencies
    • Net Income of $2-12 million
    • Adjusted EBITDA of $75-85 million

2023 Outlook

Prior Outlook at Q2 2023

in thousands

Low End

High End

Low End

High End

Total Revenue

$992,000

$1,000,000

$968,000

$1,000,000

Total Written Premium

$893,000

$901,000

$878,000

$894,000

Net Income

$2,000

$12,000

$(12,000)

$8,000

Adjusted EBITDA

$75,000

$85,000

$60,000

$80,000

The definitions and reconciliations of non-GAAP financial measures are provided under the heading Key Performance Indicators and Certain Non-GAAP Financial Measures at the end of this press release.

Conference Call Details
Hagerty will hold a conference call to discuss the financial results today at 10:00 am Eastern Time. A webcast of the conference call, including the Company's Investor presentation highlighting third quarter and year-to-date 2023 financial results, will be available on Hagerty's investor relations website at investor.hagerty.com. The dial-in for the conference call is (877) 423-9813 (toll-free) or (201) 689-8573 (international). Please dial the number 10 minutes prior to the scheduled start time.

A webcast replay of the call will be available at investor.hagerty.com following the call.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts. These forward-looking statements reflect Hagerty's current expectations and projections with respect to its expected future business and financial performance, including, among other things: (i) expected operating results, such as revenue growth and increases in earned premium; (ii) changes in the market for Hagerty's products and services, (iii) Hagerty's plans to expand market share, including planned investments and partnerships; (iv) anticipated business objectives; and (v) the strength of Hagerty's business model. These statements may be preceded by, followed by or include the words "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "goal," "intend," "likely," "outlook," "plan," "potential," "project," "seek," "target," "can," "could," "may," "should," "would," "will," the negatives thereof and other words and terms of similar meaning.

A number of factors could cause actual results or outcomes to differ materially from those indicated by these forward-looking statements. These factors include, among other things, Hagerty's ability to: (i) compete effectively within its industry and attract and retain members; (ii) maintain key strategic relationships with its insurance distribution and underwriting carrier partners; (iii) prevent, monitor and detect fraudulent activity; (iv) manage risks associated with disruptions, interruptions, outages with its technology platforms or third-party services; (v) accelerate the adoption of Hagerty's membership products as well as any new insurance programs and products; (vi) manage the cyclical nature of the insurance business including through any periods of recession, economic downturn or inflation; (vii) address unexpected increases in the frequency or severity of claims; (vii) comply with the numerous laws and regulations applicable to Hagerty's business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet and accounting matters; (ix) manage risks associated with being a controlled company; and (x) other risks and uncertainties indicated from time to time in documents filed or to be filed with the Securities and Exchange Commission (the "SEC") by Hagerty.

The forward-looking statements herein represent the judgment of Hagerty as of the date of this release and Hagerty disclaims any intent or obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. This press release should be read in conjunction with the information included in the Company's other press releases, reports and other filings with the SEC. Understanding the information contained in these filings is important in order to fully understand Hagerty's reported financial results and our business outlook for future periods.

About Hagerty, Inc. (NYSE: HGTY)

Hagerty is an automotive lifestyle brand committed to saving driving and fueling car culture for future generations. The company is a leading provider of specialty vehicle insurance, expert car valuation data and insights, live and digital car auction services, immersive events and automotive entertainment custom made for the 67 million Americans who self-describe as car enthusiasts. Hagerty also operates in Canada and the U.K. and is home to Hagerty Drivers Club, a community of over 800,000 who can't get enough of cars. As a purpose-driven organization, Hagerty Impact aims to be a catalyst for positive change across the issues that matter most to our teams, our members, the broader automotive community, our shareholders and the planet at large. For more information, please visit www.hagerty.com or connect with us on Facebook, Instagram, Twitter and LinkedIn.

More information can be found at newsroom.hagerty.com.

Category: Financial

Source: Hagerty

Hagerty, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

Three months ended September 30,

2023

2022

$ Change

% Change

REVENUE:

in thousands (except percentages and per share amounts)

Commission and fee revenue

$     103,173

$       85,457

$       17,716

20.7 %

Earned premium

139,785

107,487

32,298

30.0 %

Membership, marketplace and other revenue

32,616

23,813

8,803

37.0 %

Total revenue

275,574

216,757

58,817

27.1 %

OPERATING EXPENSES:

Salaries and benefits

51,318

50,120

1,198

2.4 %

Ceding commission

65,413

50,415

14,998

29.7 %

Losses and loss adjustment expenses

57,485

60,605

(3,120)

(5.1) %

Sales expense

47,737

44,097

3,640

8.3 %

General and administrative services

22,166

23,853

(1,687)

(7.1) %

Depreciation and amortization

10,753

8,890

1,863

21.0 %

Restructuring, impairment and related charges, net

473

—

473

100.0 %

Losses and impairments related to divestitures

4,112

—

4,112

100.0 %

Total operating expenses

259,457

237,980

21,477

9.0 %

OPERATING INCOME (LOSS)

16,117

(21,223)

37,340

175.9 %

Change in fair value of warrant liabilities

850

11,583

(10,733)

(92.7) %

Revaluation gain on previously held equity method
investment

—

34,735

(34,735)

(100.0) %

Interest and other income (expense)

6,260

662

5,598

845.6 %

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

23,227

25,757

(2,530)

(9.8) %

Income tax benefit (expense)

(4,604)

91

(4,695)

(5159.3) %

Income (loss) from equity method investment, net of tax

—

(1,535)

1,535

100.0 %

NET INCOME (LOSS)

18,623

24,313

(5,690)

(23.4) %

Net loss (income) attributable to non-controlling interest

(13,269)

(9,599)

(3,670)

38.2 %

Accretion of Series A Convertible Preferred Stock

(1,838)

—

(1,838)

100.0 %

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS
A COMMON STOCKHOLDERS

$         3,516

$       14,714

$     (11,198)

(76.1) %

Earnings (loss) per share of Class A Common Stock:

Basic

$           0.04

$           0.18

Diluted

$           0.04

$           0.07

Weighted-average shares of Class A Common Stock
outstanding:

Basic

84,479

82,816

Diluted

84,479

336,768

 

Hagerty, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

Nine months ended September 30,

2023

2022

$ Change

% Change

REVENUE:

in thousands (except percentages and per share amounts)

Commission and fee revenue

$     287,972

$     243,424

$       44,548

18.3 %

Earned premium

384,498

290,719

93,779

32.3 %

Membership, marketplace and other revenue

82,700

56,442

26,258

46.5 %

Total revenue

755,170

590,585

164,585

27.9 %

OPERATING EXPENSES:

Salaries and benefits

160,122

149,867

10,255

6.8 %

Ceding commission

181,188

138,048

43,140

31.3 %

Losses and loss adjustment expenses

159,461

136,144

23,317

17.1 %

Sales expense

124,791

109,989

14,802

13.5 %

General and administrative services

64,865

64,040

825

1.3 %

Depreciation and amortization

34,893

24,337

10,556

43.4 %

Restructuring, impairment and related charges, net

8,857

—

8,857

100.0 %

Losses and impairments related to divestitures

4,112

—

4,112

100.0 %

Total operating expenses

738,289

622,425

115,864

18.6 %

OPERATING INCOME (LOSS)

16,881

(31,840)

48,721

153.0 %

Change in fair value of warrant liabilities

(1,419)

37,869

(39,288)

(103.7) %

Revaluation gain on previously held equity method
investment

—

34,735

(34,735)

(100.0) %

Interest and other income (expense)

15,677

(375)

16,052

4,280.5 %

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

31,139

40,389

(9,250)

(22.9) %

Income tax benefit (expense)

(12,002)

(4,077)

(7,925)

(194.4) %

Income (loss) from equity method investment, net of tax

—

(1,676)

1,676

100.0 %

NET INCOME (LOSS)

19,137

34,636

(15,499)

(44.7) %

Net loss (income) attributable to non-controlling interest

(13,477)

2,049

(15,526)

(757.7) %

Accretion of Series A Convertible Preferred Stock

(1,838)

—

(1,838)

100.0 %

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS
A COMMON STOCKHOLDERS

$         3,822

$       36,685

$     (32,863)

(89.6) %

Earnings (loss) per share of Class A Common Stock:

Basic

$           0.04

$           0.44

Diluted

$           0.04

$           0.03

Weighted-average shares of Class A Common Stock
outstanding:

Basic

84,042

82,569

Diluted

84,042

335,392

 

Hagerty, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

September 30,
2023

December 31,
2022

ASSETS

in thousands (except share amounts)

Current Assets:

Cash and cash equivalents

$                    90,710

$                    95,172

Restricted cash and cash equivalents

594,865

444,019

Accounts receivable

81,960

58,255

Premiums receivable

179,168

100,700

Commissions receivable

63,192

60,151

Notes receivable

26,828

25,493

Deferred acquisition costs, net

155,278

107,342

Other current assets

56,783

45,651

Total current assets

1,248,784

936,783

Notes receivable

13,329

11,934

Property and equipment, net

21,518

25,256

Lease right-of-use assets

52,113

82,398

Intangible assets, net

95,776

104,024

Goodwill

114,198

115,041

Other long-term assets

37,959

37,082

TOTAL ASSETS

$               1,583,677

$               1,312,518

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable, accrued expenses and other current liabilities

$                    75,963

$                    77,049

Losses payable and provision for unpaid losses and loss adjustment expenses

190,784

167,257

Commissions payable

111,657

77,075

Due to insurers

113,485

68,171

Advanced premiums

28,881

17,084

Unearned premiums

335,901

235,462

Contract liabilities

33,954

25,257

Total current liabilities

890,625

667,355

Long-term lease liabilities

52,022

80,772

Long-term debt, net

75,764

108,280

Warrant liabilities

46,980

45,561

Deferred tax liability

17,892

12,850

Contract liabilities

17,835

19,169

Other long-term liabilities

3,972

11,162

TOTAL LIABILITIES

1,105,090

945,149

Commitments and Contingencies

—

—

TEMPORARY EQUITY(1)

Preferred stock, $0.0001 par value (20,000,000 shares authorized, 8,483,561 Series A Convertible
Preferred Stock issued and outstanding as of September 30, 2023 and no shares issued and
outstanding as of December 31, 2022)

80,997

—

STOCKHOLDERS' EQUITY

Class A Common Stock, $0.0001 par value (500,000,000 shares authorized, 84,479,065 and
83,202,969 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)

8

8

Class V Common Stock, $0.0001 par value (300,000,000 authorized, 251,033,906 shares issued
and outstanding as of September 30, 2023 and December 31, 2022)

25

25

Additional paid-in capital

557,961

549,034

Accumulated earnings (deficit)

(483,566)

(489,602)

Accumulated other comprehensive income (loss)

(176)

(213)

Total stockholders' equity

74,252

59,252

Non-controlling interest

323,338

308,117

Total equity

397,590

367,369

TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY

$               1,583,677

$               1,312,518

(1) The Series A Convertible Preferred Stock is recorded within Temporary Equity because it has equity conversion and cash redemption features.

 

Hagerty, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine months ended

September 30,

2023

2022

OPERATING ACTIVITIES:

in thousands

Net income (loss)

$                    19,137

$                    34,636

Adjustments to reconcile net income (loss) to net cash from operating activities:

Change in fair value of warrant liabilities

1,419

(37,869)

Loss on equity method investment

—

1,676

Revaluation gain on previously held equity method investment

—

(34,735)

Depreciation and amortization

34,893

24,337

Provision for deferred taxes

4,973

3,373

Impairment of operating lease right-of-use assets

1,147

—

Loss on disposals of equipment, software and other assets

2,019

1,131

Losses and impairments related to divestitures

2,827

—

Share-based compensation expense

13,157

8,165

Other

1,162

242

Changes in operating assets and liabilities:

Accounts, premiums and commission receivable

(107,001)

(71,753)

Deferred acquisition costs

(47,936)

(32,637)

Losses payable and provision for unpaid losses and loss adjustment expenses

23,527

53,574

Commissions payable

34,582

21,109

Due to insurers

45,322

40,876

Advanced premiums

11,800

10,363

Unearned premiums

100,439

74,624

Other assets and liabilities, net

(9,246)

(3,549)

Net Cash Provided by Operating Activities

132,221

93,563

INVESTING ACTIVITIES:

Capital expenditures

(21,556)

(33,429)

Acquisitions, net of cash acquired

(8,690)

(12,715)

Purchase of previously held equity method investment

—

(15,250)

Issuance of note receivable to previously held equity method investment

—

(7,000)

Issuance of notes receivable

(11,405)

(8,391)

Collection of notes receivable

10,252

—

Purchase of fixed income securities

(7,277)

(2,448)

Maturities of fixed income securities

4,128

1,216

Other investing activities

86

(1,662)

Net Cash Used in Investing Activities

(34,462)

(79,679)

FINANCING ACTIVITIES:

Payments on long-term debt

(132,850)

(90,500)

Proceeds from long-term debt, net of issuance costs

100,345

91,000

Proceeds from issuance of preferred stock, net of issuance costs

79,159

—

Contribution from non-controlling interest

779

1,000

Payments on notes payable

—

(1,000)

Proceeds from issuance of common stock under employee stock purchase plan

906

—

Net Cash Provided by (Used in) Financing Activities

48,339

500

Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents

286

(2,023)

Change in cash and cash equivalents and restricted cash and cash equivalents

146,384

12,361

Beginning cash and cash equivalents and restricted cash and cash equivalents

539,191

603,972

Ending cash and cash equivalents and restricted cash and cash equivalents

$                  685,575

$                  616,333

 

Hagerty, Inc.

Key Performance Indicators and Certain Non-GAAP Financial Measures

Key Performance Indicators

The tables below present a summary of our Key Performance Indicators, including important operational metrics, as well as certain GAAP and non-GAAP financial measures as of and for the periods presented. We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating the Company's performance when read together with our Condensed Consolidated Financial Statements prepared in accordance with GAAP.

Three months ended

September 30,

Nine months ended
September 30,

2023

2022

2023

2022

Operational Metrics

Total Written Premium (in thousands)

$  255,569

$  222,136

$  714,314

$  614,623

Loss Ratio

41.1 %

56.4 %

41.5 %

46.8 %

New Business Count — Insurance

69,691

68,561

201,593

190,997

GAAP Measures

Total Revenue (in thousands)

$  275,574

$  216,757

$  755,170

$  590,585

Operating Income (Loss) (in thousands)

$    16,117

$  (21,223)

$    16,881

$  (31,840)

Net Income (Loss) (in thousands)

$    18,623

$    24,313

$    19,137

$    34,636

Basic Earnings (Loss) Per Share

$        0.04

$        0.18

$        0.04

$        0.44

Non-GAAP Financial Measures

Adjusted EBITDA (in thousands)

$    37,377

$  (10,010)

$    78,449

$          96

Adjusted Earnings (Loss) Per Share

$        0.05

$      (0.06)

$        0.05

$      (0.10)

 

September 30,

2023

December 31,

2022

Operational Metrics

Policies in Force

1,387,429

1,315,977

Policies in Force Retention

88.2 %

88.0 %

Vehicles in Force

2,356,603

2,234,461

HDC Paid Member Count

806,832

752,754

Net Promoter Score (NPS)                                              

83

83

Non-GAAP Financial Measures

Adjusted EBITDA

We define Adjusted EBITDA as consolidated Net income (loss) excluding interest and other income (expense), income tax (expense) benefit, and depreciation and amortization, adjusted to exclude (i) changes in fair value of warrant liabilities; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges, net; (iv) the net gain or loss from asset disposals; (v) losses and impairments related to divestitures; (vi) revaluation gain on previously held equity method investment; and (vii) certain other unusual items.

We present Adjusted EBITDA because we consider it to be an important supplemental measure of the Company's performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management uses Adjusted EBITDA as a measure of the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.

By providing this non-GAAP financial measure, together with a reconciliation to net income (loss), which is the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss) or other financial statement data presented in our Condensed Consolidated Financial Statements as indicators of financial performance. Hagerty's Adjusted EBITDA may be determined or calculated differently than similarly titled measures of other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is Net income (loss):

Three months ended

September 30,

Nine months ended
September 30,

2023

2022

2023

2022

in thousands

Net income (loss)

$       18,623

$       24,313

$       19,137

$       34,636

Interest and other (income) expense

(6,260)

(662)

(15,677)

375

Income tax (benefit) expense

4,604

(91)

12,002

4,077

Depreciation and amortization

10,753

8,890

34,893

24,337

Restructuring, impairment and related charges, net

473

—

8,857

—

Change in fair value of warrant liabilities

(850)

(11,583)

1,419

(37,869)

Share-based compensation expense

4,935

3,858

12,869

8,165

Losses and impairments related to divestitures

4,112

—

4,112

—

Revaluation gain previously held equity method
investment

—

(34,735)

—

(34,735)

Other unusual items (1)

987

—

837

1,110

Adjusted EBITDA

$       37,377

$     (10,010)

$       78,449

$             96

(1) Other unusual items primarily includes a net legal settlement accrual recognized in the three and nine months ended
     September 30, 2023 and non-restructuring severance expense recognized in the nine months ended September 30, 2022.

The following table reconciles Adjusted EBITDA for the year ended December 31, 2023 Outlook to the most directly comparable GAAP measure, which is Net income (loss):

2023 Low

2023 High

in thousands

Net income (loss)

$              2,000

$            12,000

Interest and other (income) expense

(18,500)

(18,500)

Income tax (benefit) expense

15,500

15,500

Depreciation and amortization

44,112

44,112

Restructuring, impairment and related charges, net

8,857

8,857

Change in fair value of warrant liabilities

1,419

1,419

Share-based compensation expense

17,500

17,500

Losses and impairments related to divestitures

4,112

4,112

Adjusted EBITDA

$            75,000

$            85,000

Adjusted EPS

We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated Net income (loss), less the change in fair value of our warrants and, when applicable, the revaluation gain on previously held equity method investment divided by our outstanding and total potentially dilutive securities, which includes (i) the weighted-average issued and outstanding shares of Class A Common Stock; (ii) all issued and outstanding non-controlling interest Hagerty Group Units; (iii) all unexercised warrants; (iv) all unissued share-based compensation awards; and (v) all issued and outstanding shares of the Series A Convertible Preferred Stock.

The most directly comparable GAAP measure is basic earnings per share ("Basic EPS"), which is calculated as Net income (loss) available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock shares outstanding during the period.

We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by securities analysts, investors and other interested parties in evaluating the consolidated performance of other companies in our industry. We also believe that Adjusted EPS, which compares our consolidated Net income (loss) with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis.

Management uses Adjusted EPS:

  • as a measurement of operating performance of our business on a fully consolidated basis;
  • to evaluate the performance and effectiveness of our operational strategies; and
  • as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.

We caution investors that Adjusted EPS is not a recognized measure under GAAP and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, including Basic EPS, and that Adjusted EPS, as we define it, may be defined or calculated differently by other companies. In addition, Adjusted EPS has limitations as an analytical tool and should not be considered as a measure of profit or loss per share.

The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS:

Three months ended

September 30,

Nine months ended

September 30,

2023

2022

2023

2022

in thousands (except per share amounts)

Numerator:

Net income (loss) available to Class A Common
Stockholders (1)

$         3,255

$       14,714

$         3,712

$       36,685

Undistributed earnings allocated to Series A Convertible
Preferred Stock

261

—

110

—

Accretion of Series A Convertible Preferred Stock

1,838

—

1,838

—

Net income (loss) attributable to non-controlling interest

13,269

9,599

13,477

(2,049)

Consolidated net income (loss)

18,623

24,313

19,137

34,636

Change in fair value of warrant liabilities

(850)

(11,583)

1,419

(37,869)

Revaluation gain on previously held equity method
investment

—

(34,735)

—

(34,735)

Adjusted consolidated net income (loss) (2)

$       17,773

$     (22,005)

$       20,556

$     (37,968)

Denominator:

Weighted average shares of Class A Common Stock
outstanding — basic(1)

84,479

82,816

84,042

82,569

Total potentially dilutive securities outstanding:

Conversion of non-controlling interest Hagerty Group
Units to Class A Common Stock

255,499

255,758

255,499

255,758

Conversion of Series A Convertible Preferred Stock to
Class A Common Stock

6,785

—

6,785

—

Total unissued share-based compensation awards

8,490

6,878

8,490

6,878

Total warrants outstanding

19,484

19,484

19,484

19,484

Potentially dilutive shares outstanding

290,258

282,120

290,258

282,120

Fully dilutive shares outstanding (2)

374,737

364,936

374,300

364,689

Basic EPS(1)

$           0.04

$           0.18

$           0.04

$           0.44

Adjusted EPS(2)

$           0.05

$         (0.06)

$           0.05

$         (0.10)

(1)  Numerator and Denominator of the GAAP measure Basic EPS

(2) Numerator and Denominator of the non-GAAP measure Adjusted EPS

 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/hagerty-reports-third-quarter-2023-results-increases-2023-outlook-301980734.html

SOURCE Hagerty

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